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News You Can Use U.S. mortgage bonds slip after January CPI rise Prices of U.S. mortgage bonds moved a tad lower early Friday after a bigger-than-expected January rise in U.S. consumer prices resurrected the specter of inflation, the nemesis of bonds. "This will put a halt in the recent rally in bond prices," said Stuart Hoffman, PNC Financial Services' chief economist. Thirty- and 15-year MBS were unchanged to down 2/32, faring better than U.S. Treasuries. Bond equivalent yields on 30-year, 5-percent MBS were up 1 basis point from late Thursday. The yield on Treasury 10-year notes <US10YT=RR> rose to 4.09 percent from Thursday's close of 4.03 percent. Although a pickup in inflation is bad news for all bonds, it offers temporary relief for mortgage-backed securities. The MBS market has been under pressure this week on renewed fears that falling mortgage rates would spur a flood of refinancing that could hurt MBS returns. Average 30-year U.S. mortgage rates fell to a seven-month low this week, as the yield on 10-year Treasury notes briefly dipped below 4 percent, according to Freddie Mac. Industry data showed that refinancing demand rebounded last week after declining three weeks in a row. MBS performance has fluctuated with the swings in Treasury yields, as trading volume has been muted. "The market is pretty directional," said Art Frank, head of MBS research at Nomura Securities International. "In the near term, it's pretty much determined by economic data." On Friday, the U.S. Labor Department said its Consumer Price Index rose 0.5 percent in January, its biggest rise in nearly a year and higher than the 0.3 percent expected by analysts. The CPI core rate, which excludes volatile energy and food prices, rose 0.2 percent, higher than analysts' forecast of 0.1 percent. CPI's unexpectedly large increase should take steam away from the Treasury market, which has been partly driven by currency interventions of foreign central banks, especially those in Asia, analysts said. Overseas central banks have been buying Treasuries and other low-risk U.S. bonds to offset their currencies' rise against the dollar. Their currencies' appreciation makes their goods more expensive to sell in the United States.
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